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General election would weaken defences against digital tax

Cantillon: Paschal Donohoe needs all his focus to stave off sales tax on multinationals

Sat, Nov 25, 2017, 08:30

Minister for Finance Paschal Donohoe: an early election would sap his time and energy ahead of a key December meeting. Photograph: Brenda Fitzsimons

There has been much talk about the threat a snap general election could pose to our position in the Brexit talks. But it’s not the only issue with which the Government has to contend. Minister for Finance Paschal Donohoe is trying to fight off attempts to introduce a new digital tax on the sales of the big multinational players and faces a crunch meeting of finance ministers in the first week of December. The goal of the meeting is to reach a “common understanding” of a way forward, so the pressure is on.

Dealing with this issue is high on Donohoe’s agenda and reports suggest he has some support around the table. But this issue is not going away – not by a long shot.

The proposed digital tax would impose a levy on the sales of the major players in different European markets. It would be a move away from the normal practice of taxing companies based on profits and is a trend which, if pursued, would threaten Ireland’s corporate tax base. Ireland would much prefer an approach being led by the Paris-based OECD, which aims to tackle multinational tax avoidance through more traditional approaches.

New proposals

But this is now becoming like a game of “whack a mole” for Ireland, with new proposals appearing all over the place as individual countries appear to tire from waiting for movement under the OECD process. The big EU countries are promoting the digital sales tax and the European Commission is continuing to pursue its plan for a common corporate tax base.

The UK treasury this week put forward a new plan in the British budget, which would see a special tax imposed when royalty structures are used to move revenue resulting from UK sales out to offshore tax havens. It appears the UK is targeting structures which involved money moving through countries such as Ireland and then offshore.

There are real questions about whether such a tax could, in fact, be collected. But details aside, it is clear there is now a big international move on here and that there are huge stakes for Ireland.

It’s just one more reason to avoid an early election and to have a Minister for Finance who can devote the necessary time and energy ahead of the key December meeting.

A man with a profound understanding of how money is made and lost, Kerry-born economist Richard Cantillon (1680s-1734) is a fitting namesake for this long-running column. Since 2009, Cantillon delivers succinct business comment on the stories behind the news.

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